Developer fees for school building OK’d, impacts abound

by Tom Chorneau

(Calif.) The state panel charged with overseeing school construction funding gave the green light to districts last week to level maximum fees on housing developers – the first time this step has been taken since the program was created 30 years ago.

The move, which some have criticized as drastic, is also likely to have broad economic impacts in exactly those fast-growing communities where classroom overcrowding is a problem today.

Economists point out that many more school districts statewide have aging facilities that will need to be replaced or significantly upgraded in the coming years, making the new fee policy a hot-button issue for elected officials and policy makers statewide.

Perhaps most importantly, the action by the State Allocation Board – which the governor shares authority over – pits the longstanding goal of Gov. Jerry Brown to reduce the state’s debt against his equally committed ambition to maintain the state’s economic recovery.

“Fundamentally, we have relied on property tax to finance all sorts of local infrastructure,” said Robert Kleinhenz, executive director of research at Beacon Economics. “So it’s not altogether out of order for us to think that we would turn to some type of tax on property to help finance the building of schools.”

At the same time, he said, the imposition of yet another fee on housing will tend to crimp the economy. “The housing market throughout California and especially in certain regions has been slow to recover,” he explained. “And this (new fee policy) could potentially be a problem.”

For decades, the cost of new school construction and facility improvements was shared between the state and local communities through the use of bond financing. In 1986, the construction industry was folded into the mix through program changes that established a three-tiered fee structure allowing districts to charge developers for growth impacts.

While voters on the local level continue to support district bond measures, the governor has resisted several attempts by the Legislature in recent years to place a statewide bond on the ballot.

Although the governor has called for a restructuring of the School Facility Program – complaining that it is overly complex and unfair – he has yet to provide a replacement even as state funds for helping local projects have dried up.

Meanwhile, school groups and the building industry have qualified a $9 billion statewide bond measure for the November ballot.

If voters approve the bond, the ability to collect Level III developer fees will likely be rescinded. But if the proposal is rejected, the policy is expected to have significant economic implications – especially in those communities were the population is growing and more is expected.

“In the outlying communities of San Francisco or looking east from Orange County into the Inland Empire – these are places where you are going to be seeing significant population growth,” said Kleinhenz.

“That would include young families who are going to be needing new and perhaps larger school facilities,” he said. “These are the kinds of areas that undoubtedly are going to see population growth over the next few decades.”

Already several school districts say they are set to begin assessing new fees. School officials from Fremont and Dublin have lobbied their state representatives and appeared before the allocation board to lobby for the fee authorization, saying their classrooms are already overflowing and they have no other funding alternative.

Under state law, Level III developer fees can be applied when matching state funds have been officially exhausted and districts meet required benchmarks for enrollment growth and borrowing limits.

Last week, in what may have been a surprise, the allocation board – a 10-member panel that includes six legislators, three representatives of the governor and the state schools chief – declared the state funding pool depleted, triggering the ability of qualifying districts to collect Level III fees.

Districts interested in utilizing the new funding resource must first conduct a facilities needs assessment and hold a public hearing before making a finding that the fees are needed.

It is unclear how many housing projects might be impacted, especially since the outcome of the $9 billion statewide bond is just six months away – a relatively short time frame in the context of subdivision development.

In 2015, residential building increased 12 percent from the year before to almost 100,000 units statewide. While the trend since the recession has been gradually upbeat, the numbers remain far below output earlier in the decade when 150,000 permits were commonly issued each year.

David Cogdill, president and CEO of the California Building Industry Association, said the move by the State Allocation Board will not solve the school construction problem.

“[This] action will not adequately address the lack of state school facility funding, and will only exacerbate California's housing crisis, further reduce needed supply and make it even more difficult for working families to be able to afford housing in our state,” he said in a statement. “The only effective way to ensure students have access to quality schools, protect housing affordability and safeguard our economy is to pass the bond in November.”

The Coalition for Adequate School Housing estimates that there is a $40 billion need currently statewide to build new schools and modernize old ones.

Kleinhenz said it remains to be seen how the governor’s policy on school construction funding will evolve.

“Brown has taken care in recent years to try and shed the state from some of these obligations,” he said. “This is another example, I think, where the governor is trying to push the burden somewhere else – in this case to local school districts and their communities.”